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LCS Spin Off Contracts Begin to be Awarded

At the end of last year the U.S. Navy announced that it would go ahead and use two sources for the new Littoral Combat Ship (LCS). This was a reversion to the original plan for the small warship designed to fight inshore. Contracts were quickly awarded to Lockheed Martin (LMT) and Austal America (ASB:AUS) for ten ships each.

Now a variety of support and sub-contracts are beginning to be announced by suppliers for components to help assemble the new ships. While the two designs have very different hull forms the basic combat systems and weapons will be the same.

BAE Systems (BAE:LSE) has announced that they will fabricate 57-millimeter cannons for the Lockheed ships. These guns will be made at their plant in Minnesota. This is part of Lockheed’s almost $4 billion order for ships.

General Dynamics (GD) received a contract from Austal to build their ship’s combat and seaframe control systems. This is an open architecture system that supports the Navy’s plan to have different combat modules that are interchangeable on the ships.

One of the companies that may stand to gain the most from the contracts is Alcoa (AA). They not only provide engineering support to the Navy for the use of aluminum and other metals in ship construction including the LCS but also make the metal that Austal will use to assemble their LCS in Mobile, AL. If the Navy builds upwards of thirty or forty ships the amount of aluminum required will be quite substantial.

Lockheed also has awarded Rolls-Royce (RR:LSE) a contract for the power plants and propulsion systems. The Lockheed ships will be built at Marinette Marine’s yard in Wisconsin. Rolls-Royce makes the MT30 gas turbine which then uses water jets to propel the LCS.

As the two LCS programs continue more-and-more of these large sub-contracts will be announced as the money and work flows to different parts of the United States and many different companies. This continues to illustrate the economic effects of large defense procurement programs.

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